Japan Residential ORD 10P Share Discussion Threads

[tonyd3] 29/1/2008 23:55

515,000 shares sold today .More institutional sellers

[tonyd3] 16/1/2008 22:10

Prospect EP , the other japanese REIT that Money Week recommended with JRIC has fallen by well over 10% in the last 2 days based on its latest NAV update where the NAV has fallen by 6p in one month.

It worth noting Moneyweek recomended Prospect EP when its share price was £1.26 . It price is now 62p(50% loss). Looks like Money week have made a really bad call on its bullish view on the Japanese REIT market. Institutional shareholders sold another 250,000 JRIC shares today.

Please read my previous post where I predicted this share would fall to 68p. I was told I was being unrealistic

My sense now is this share will fall well below 68p, possibly as low as 39p in the next 12 months.

[tonyd3] 07/1/2008 22:34

The Japanese Builders don't want to invest in Japan

Daiwa House Chief Warns of `Bubble,' Plans China Push (Update3)

By Kathleen Chu and Kazue Somiya

Sept. 5 (Bloomberg) -- Daiwa House Industry Co., Japan's second-biggest homebuilder by market value, wants to cut local costs and expand in China as the developer is concerned a property ``bubble'' may burst, slashing land prices.

``The property market has become dangerous,'' Takeo Higuchi, chairman of the Osaka-based homebuilder, said in an interview. ``I wouldn't be surprised if the real estate bubble goes bust.''

Land prices are key for Japanese homebuilders like Daiwa House because declines in population are shrinking the residential construction market. Housing starts in the first half of this year averaged about 23,000 a month fewer than they did 20 years ago.

Daiwa House wants to build condominiums in China and Vietnam and is increasing sales of cheaper steel-frame homes in Japan. The company also is investing in energy and research into rechargeable batteries.

The Ministry of Health, Labor and Welfare in December predicted Japan's population would drop to 95.2 million by 2050 from 127.8 million in 2005 because people are marrying later in life and having fewer children. That compares with a January 2002 forecast for a 21 percent decline in the population to 100.6 million by 2050.

Full article

[tonyd3] 07/1/2008 22:25

Is a population fall of 30 million good for long term property values ?

Asia Pacific: Special Report - Japan shows its age
Words by: Michael Backman, World Business
Published: 07-Mar-07
The population is ageing and the economy contracting, but Japan will remain a very rich consumer market.
Japan has the world's second biggest economy after the US. But there is a problem: not only is its population ageing, but soon there will be fewer Japanese than there are today - about 30 million fewer in 50 years' time, based on current trends.

What will this mean? For a start, it explains why Japan's economic recovery is fragile - and don't expect the country's real estate market to have good long-term prospects. Japan can look forward to plenty of empty flats and houses; property prices have already declined to about 1970s levels.

Japan's population is now about 127 million: the Institute of Population and Social Security Research forecasts that it will fall to somewhere between 92 million and 108 million by 2050, and the UN estimates that it will decline to 105 million.

Having only just enacted a new pension scheme, which assumed a fertility rate of 1.39, the Japanese government discovered in 2004 that fertility rates were falling even faster than had been predicted, dropping from 1.32 babies per woman in 2002 to 1.29 in 2004. With a population that's both ageing and shrinking, Japan's economy can hardly be expected to grow in a sustained way.

Full article

[tonyd3] 07/1/2008 22:11

Japan
Credit Crunch Coming
January 07, 2008

By Takehiro Sato | Tokyo


Liquidity constraint is the key word in 2008

It is time to get ready for a mini credit crunch at small and medium-sized enterprises (SMEs) and tiny businesses. The coming crunch should not develop into a severe credit contraction that envelops large corporations as in 1998, but could deal a body blow to the economy given that it exposes to risk these smaller businesses that vastly outnumber large firms and employ more workers in total. The money markets in the US were malfunctioning at the end of last year, and there is risk that non-financial sectors will also see liquidity constraints lead to freezing or postponement of capex; in Japan, once SMEs and tiny firms face liquidity constraints, their access to capex funds and working capital suffers and in the worst cases their survival is in jeopardy. The definition of SMEs varies, but the proportion of capex made by such firms is about 17% in the BoJ Tankan survey and 26% in the MoF Corporate Statistics, so this impact would be far from negligible. Our views on this issue, and on housing investment, explain why we are more bearish on the economy in 2008 than the market consensus.


Full article

[tonyd3] 07/1/2008 21:01

I think it all depends on whether the NAV increases .If the NAV decreases as result of burn rate on fees then the payout is going to impact nav .A 3p dividend will come out of the NAV and potentially lead to further share price falls of 3p. It could be a zero sum game .If they have made a profit on year then fair enough the dividend payout will have a positive impact.

large volume 750,000 shares sold today in one trade at 70p which means institutional shareholders are beginning to sell

[chairman2] 01/1/2008 10:45

tonyd

At launch the company virtually promised a "high" dividend yield

do you think they could pass paying a divi in 08 in favour of cash
burn on fees investing to the max?

[tonyd3] 01/1/2008 10:26

Prediction For this share in 2008
Optimistic
The Sterling -Yen exchange rate is about 10% below its high and at it october 2006 level when this fund Launch . If sterling falls another 10% against the yen then it will be at its longer term average level over the last 4 years.
This be good news for this stock . Should lift the NAV back up to 95p. Property prices don't decrease, as result of property bubble in Japan popping and the yield from existing properties is higher than expenses incurred from new properties so they don't make a loss over the next 6 months. The company pays a 3p dividend for the year. Confidence in the company is higher than other property stocks The company trades a 10% discount with share price of to 87p

Pessimistic
The Sterling -Yen exchange rate is now in its long term trading range for 2008 meaning the funds NAV is 93p. The liquidity of property investment is such that the currency exchange does not move the share price as expected. Assessed Property values in Japan decrease by 3% in first half which has a 10% impact on NAV due to LTV and wiping out exchange rate gain. The company incurs another £7M of expenses and fees on buying the new properties in the pipeline to become 65% invested. The NAV is now 78p by mid 2008.The company invests its remaining 35% in 2nd half and incurs a further £7M in fees and expenses taking the nav to 71. Property values decrease by a further 2% in 2nd half taking Nav down by 8% to 65p by close of the year. The company still has not paid a dividend by COP 2008 due to fees and expenses in buying properties and setting up the fund. Confidence in the company drops and the resulting share price is trading at 40% discount and Share price drops to 39p.


My sense i the outlook for this share is probably in the middle of these two scenarios .

[energyi] 12/12/2007 01:45

Is JRIC too cheap?:

[joan of arc] 26/11/2007 23:37

Anyone care to conjecture what our fortunes might be given that the yen is rising and so are the prospects for the Japanese economy and real estate (see Money Week's latest issue)?

[tonyd3] 26/11/2007 22:22

When I read their propectus originally , the dividend was expected to be 6% based on the orginal launch price of 100p so it would be nearly 8% yield at present if they decide to pay a dividend at that level . They didn't pay any dividend in the first 6 months of trading

[joan of arc] 22/11/2007 10:31

Do they have a stated policy re paying divis??

[tonyd3] 21/11/2007 19:59

Below 68p here we come , are we at the height of pessimism yet ?. To be honest I beginning to lower my expectations . I thought 68p was a good price to buy but British Land et al are now trading at 50% below NAV and things seems to be getting worse . My etimate now is this could drop as low as 44p. It carnage out there.

Yield will need may then about 13% by then , however they never paid a dividend so who knows

[monty9] 20/9/2007 17:12

It is odd that the price collapsed just after JPY has appreciated 7% against GBP, the value of property in Tokyo has increased 14% in the last year and near that in other cities. I accept that Japan has gone deflationary again, but while this may put some pressure on rent yields, they have generally been strong over the last 15 years, and the pressure on interest rates is now downward, or at least resistant to increase, which should help the property prices. Even an increase in interest should benefit a GBP portfolio as the currency should strengthen.

I too notice some institutions are buying, but some are selling too - the market makers would not hold that much AIM stock (unless that is why the price is so low - massively oversold).

NAV is probably about as low as it will get, given the purchasing costs and adverse currency movements.

Still looks like a strong hold to me, and If I hadn't bought any yet, I would be doing so now, and with confidence.

[shuisky] 20/9/2007 12:21

tonyd3,

Everything you are saying, or rather the fears of, are 'in the price already'. The real question is do you sell now at the height of pessimism over things like credit spreads and sub-prime contagion, or do you think that the situation will be eased and credit spreads will tighten again in line with what happened after LTCM?

The FED response has been the same. I'm betting that the market response will be too.

Incidentaly, you are wrong. The institutions have been buying this recently...



Aviva now holding over 26%


As to the NAV discount issue, I disagree that is necessarily the best way to value property co's, and certainly you should not compare UK with Japan in using this method. I also think it wrong to use NAV when the co hasn't invested the funds yet.

This hasn't been profitable investment for me yet, but I know the reasons why and it works well within my portfolio. If Sterling weakens against the Yen and Japan continues to benefit from strong Asian growth and unemployment continues to fall than we can expect yield compression and NAV rises.

[stuart14] 19/9/2007 07:04

As I posted before, if all these Property Co's and REITs are trading so far below NAV surely that is because the market thinks the propertys being held are 30% overvalued?

[tonyd3] 19/9/2007 01:33

Shuisky

so whose optimistic now , it now below 85 and now looking nearer to 68 than 95 when I lasy posted and you said I was being unrealistic. British Land is now trading at a 30% discount to NAV . Prospect EPIC has dropped by over 40% from its high

The institutions are have all been borrowing to invest in Assets . They are now selling those investments to get liquidity because they can't lend anymore . they are selling their weakest assets . Property shares don't look like a good investment at present and Japan is has turned deflationary again. The Japanese won't invest in their own currency or assets . Th Japanese Government don't want the currency to appreciate because it will damage exports .People are getting fired in the Institutions over the sub prime crisis so who is going to risk right now on an unproven company. The institutions are selling this bit by bit while they can still get 80p a share

I think the big picture is , investing in this share is like catching a falling knife . This is still falling and will continue . Sell now and buy back in at between at 60p. I ve revised my view down since last time . You should do the same . That big picture is as Warren Buffett says , invest with a margin of contingency below the NAV should they have to break the company up. So I think given the uncertainty you should pay no more than British Land discount yo NAV

[monty9] 07/9/2007 18:32

Shuisky, may I endorse your thoughts. Here are my own, similar ones at this juncture.

Since its low in July the Yen has moved from 250 to 230 - an 8% gain.
What's that, about £7M?

Incidentally, hedging is not an economical long term solution - if you are in Yen, with capital in GBP, that's realistically where you are at. Its not like farming where you need the price assurance to make the short term invesment in the crop each year. And it makes no difference whether the Yen is in cash or real estate.

The sub-prime woes are grown in USA and imported to Europe to a degree, I don't hear anyone saying the Japanese can't pay their mortgages (though it isn't easy to get one in the first place).

A credit crunch will mitigate in Yen's favour - we have seen rapid movements when things look dodgy, ameliorated by huge, HUGE, injections of liquidity by central banks, and artificially low interest rates in the US. They can't keep doing that indefinitely.

Japan is dragging itself out of a 15 year recession, while the UK feels as if it is surfing in the very frothy tip of the wave at the end of a long boom.

The provenance of the JRIC management is good. I don't recall excessive payments being made from the placing doc (though there are a lot of relationships being set up that might produce a few good earners).

I don't think they should run out of cash and need to raise new money. They seem to be investing what they have according to plan and have been able to borrow money at reasonable rates (WELL below rental yield).

Its a closed fund so the discount to assets will right itself in time.

My best guess as to what is happening is a rather unimaginitive response to the first set of accounts. That, together with the fact that it is a bit off the beaten track, may have persuaded some institutions to sell - its not their money and they are generally very risk averse in times like these.

Again, unless there are some dirty secrets in the cupboard, it remains a first class opportunity, and at a 15% discount to last time.

[shuisky] 07/9/2007 10:45

tiredoldbroker, You make a fair point. However, going forward, the key point we have to accept is that there is currency risk to be carried with holding JRIC.

Indeed, I look at this as a punt on the currency, with a (hopefully) substantive yield paying me for the punt. I also like the macro-economic trends in Japan and the potential for yield compression to raise property values.

However, it's been hit by the Yen weakness and the sub-prime woes. Who really knows when and how the sub-prime issue will subside? I'll be the first person out if these issues get worse or it becomes clear that they can't get funding. But, for now, they don't appear to have a problem. I'll also be out like a shot, if there is any slight hint of more fund-raising.

The point I'm trying to make is that, in this environment, the best thing you can ask the company to do is to invest the funds in a timely fashion. And that's exactly what they are doing.

The second best thing would be to use the funds to buy back stock. Unfortunately, that is a tough call because they have already converted the Sterling raised into devalued Yen.

[tiredoldbroker] 07/9/2007 10:16

You can't blame the company for the performance of the Yen, sure enough. BUT - and it really is a worthwhile point - you can blame the company for not hedging its currency position, especially in the first 18 months up to the point where they are fully invested. Other businesses manage to hedge their currency exposure (some even make money out of it) and it is worth asking why JRIC and its quite well remunerated advisors didn;t think of doing this.

[stuart14] 07/9/2007 10:09

I was reading an article about U.K REITS in the Business last weekend. It had a selection trading below NAV, some over 30% below.

My question is how do you calculate NAV for a Property Co. Surely the property is only worth what someone would pay for it, and thus if the market values your property portfolio 30% below NAV it is actually saying it thinks the actual property is 30% overvalued?

[shuisky] 07/9/2007 10:02

No. You are being unrealistic.

The currency issue is a risk that every investor knew about before investing. You can't blame the co for the rate of the Yen.

Part of the reason there isn't divi at interim is the currency issue and also the fact that they are ahead of their nvesting schedule.

The 'trading below NAV' thing is a UK-focused approach which reflects the fact there has been little to no yield spread in the UK. I don't agree that it is necessarily the best way to value a property company. You should not be comparing the underlying fundamentals of the UK property market with that of Japan.

You are correct that the sentiment over sub-prime and property co's getting funding are weighing heavily over the sector in general. However, once these issues are resolved, whch way do you think the sector will go?

Where do you see the Yen going?

These are the questions you shoud be asking.

It's easy to join the share price bandwagon and knock a share when it's fallen, but a lot harder to hold your nerve and see the big picture.